Omnibus Simplification Proposal goes well beyond its goal of reducing reporting burdens by 25%, drastically cutting ESG transparency and due diligence and risking EU sustainable finance leadership

Berlin/Brussels, 26/02/2024: The European Commission’s new Omnibus proposal, intended to streamline sustainability reporting and due diligence obligations under the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD) and EU Taxonomy risks undermining years of progress in sustainable finance and corporate accountability. Climate & Company’s experts warn that the drastic changes will hinder meaningful value chain transparency and weaken the EU’s global leadership in sustainable finance.

Sweeping Cuts to Reporting Obligations

“The Omnibus proposal doesn’t streamline sustainability policy—it weakens it,” says Dr. Theresa Spandel, Sustainability Reporting Expert at Climate & Company. “By drastically raising CSRD thresholds, it abandons thousands of companies already working on ESG transparency, penalises responsible businesses, and hinders meaningful value chain reporting. This weakens the EU’s position as a global leader in sustainable finance.”

Under the revised CSRD framework, the minimum reporting threshold would increase to companies with 1,000+ employees and €50 million in turnover or a balance sheet of more than €25 million. “This eliminates up to 80% of businesses from sustainability reporting, far exceeding the intended 25% burden reduction,” warns Spandel. The voluntary reporting standard, which replaces full ESRS disclosures for companies below 1000 employees, will significantly reduce the depth and scope of sustainability reporting.

Missed Opportunity for Smart Simplification

While the proposal claims to ease the administrative burden on businesses, Spandel argues that it takes a crude approach instead of targeted solutions that would genuinely improve policy coherence. “Many firms in industries with high sustainability impact would now be exempted from important disclosure requirements, reducing transparency for investors and stakeholders.” A more effective solution to balance reporting obligations, she argues, would be a sector-based approach. “This could reflect the market composition by firm size and environmental impact while keeping full transparency in high-impact sectors,” explains Spandel. “Sector-specific guidance could also help firms navigate materiality assessments more efficiently.”

Instead, the proposal removes sector-specific reporting standards under CSRD, making it harder for companies to conduct materiality assessments and produce meaningful reports. “This is a missed opportunity to simplify reporting while maintaining transparency,” says Spandel. “Instead of supporting companies in implementing the CSRD and CSDDD, the proposal rolls back years of policy progress overnight.”

Weakened Due Diligence and Accountability

The Omnibus proposal also narrows the due diligence requirements under both CSRD and CSDDD, limiting accountability to direct (Tier 1) suppliers despite evidence that the most severe sustainability risks—such as deforestation, biodiversity loss, and human rights violations—occur further up in supply chains.

“By limiting due diligence obligations to only direct suppliers, the Commission is basically saying that environmental destruction and human rights breaches, if caused upstream, can be disregarded unless reported by media, NGOs, or past incidents,” says Louise Simon, Due Diligence Expert at Climate & Company. “This undermines risk assessment and transparency, making it easier for companies to ignore critical sustainability risks in their supply chains.”

At the same time, the removal of the review clause on financial sector due diligence in the CSDDD creates legal uncertainty, policy fragmentation, and an unlevel playing field. “The review clause is not about imposing new burdens but about ensuring that financial sector due diligence is feasible and well-calibrated,” explains Simon. “By retaining this provision, the EU could establish a risk-based, proportionate framework that works for financial institutions while reinforcing policy coherence and competitiveness.”